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LESSON 7 

PLANT LOCATION AND LAYOUT 



Abha Kumar 



STRUCTURE 



7.0 Introduction 

7.1 Objectives 

7.2 Plant Location 

7.2.1 Locational Analysis 

7.2.2 Selection criteria 

7.2.3 Significance 

7.3 Plant layout 

7.3.1 Definition 

7.3.2 Importance 

7.3.3 Essentials 

7.3.4 Types of layout 

7.3.5 Factors influencing layout 

7.3.6 Dynamics of plant layout 

7.3.7 Applicability of plant layout 

7.4 Summary 

7.5 Glossary 

7.6 Self Assessment Questions 

7.7 Further Readings 



7.0 INTRODUCTION 



In the previous unit you have learnt how the entrepreneur conducts the detailed 
analysis comprising of technical, financial, economic and market study before 
laying down a comprehensive business plan. For implementation of this plan, he 
has to take various crucial decisions namely location of business, layout (the 
arrangement of physical facilities), designing the product, production planning 
and control and maintaining good quality of product. This lesson deals with 
various aspects of plant location and layout. Investment in analyzing the aspects 
of plant location and the appropriate plant layout can help an entrepreneur achieve 
economic efficiencies in business operations. These decisions lay the foundation 
of the business of small entrepreneurs. 



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7.1 OBJECTIVES 



After studying this lesson, you should be able to: 

• Describe the concepts of plant location and plant layout 

• Identify the various factors to be considered for selection of plant location- 
from state/area to the specific site 

• Distinguish among the alternative patterns of plant layout 

• Discuss the various factors influencing the choice of an initial layout and 
its subsequent modification 



7.2 PLANT LOCATION 



Every entrepreneur is faced with the problem of deciding the best site for location 
of his plant or factory. 

What is plant location? 

Plant location refers to the choice of region and the selection of a particular site 
for setting up a business or factory. 

But the choice is made only after considering cost and benefits of different 
alternative sites. It is a strategic decision that cannot be changed once taken. If at 
all changed only at considerable loss, the location should be selected as per its 
own requirements and circumstances. Each individual plant is a case in itself. 
Businessman should try to make an attempt for optimum or ideal location. 

What is an ideal location? 

An ideal location is one where the cost of the product is kept to minimum, with a 
large market share, the least risk and the maximum social gain. It is the place of 
maximum net advantage or which gives lowest unit cost of production and 
distribution. For achieving this objective, small-scale entrepreneur can make use 
of locational analysis for this purpose. 



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7.2.1 LOCATIONAL ANALYSIS 



Locational analysis is a dynamic process where entrepreneur analyses and 
compares the appropriateness or otherwise of alternative sites with the aim of 
selecting the best site for a given enterprise. It consists the following: 

(a) Demographic Analysis : It involves study of population in the area in terms of 
total population (in no.), age composition, per capita income, educational level, 
occupational structure etc. 

(b) Trade Area Analysis : It is an analysis of the geographic area that provides 
continued clientele to the firm. He would also see the feasibility of accessing the 
trade area from alternative sites. 

(c) Competitive Analysis : It helps to judge the nature, location, size and quality 
of competition in a given trade area. 

(d) Traffic analysis : To have a rough idea about the number of potential 
customers passing by the proposed site during the working hours of the shop, the 
traffic analysis aims at judging the alternative sites in terms of pedestrian and 
vehicular traffic passing a site. 

(e) Site economics : Alternative sites are evaluated in terms of establishment costs 
and operational costs under this. Costs of establishment is basically cost incurred 
for permanent physical facilities but operational costs are incurred for running 
business on day to day basis, they are also called as running costs. 

Two sites A and B are evaluated in terms of above mentioned two costs as 
follows: 



Table 7.1: Comparative Costs of Alternative Locations 


Costs 


Site A(Rs.) 


Site B (Rs.) 


Cost of establishments: 






Land and Buildings 


350000 


230000 


Equipment 


60000 


60000 


Transport facilities 


20000 


30000 


Cost of operations: 






Materials, freight and carriage 


34000 


24000 


Taxes and insurance 


10000 


7500 


Labour 


100000 


70000 


Water, power and fuel 


10000 


8000 


Total 


584000 


429500 



The above cost statement indicates that site B is preferable to site A keeping in 
mind economic considerations only although in some respects site A has lower 
costs. By applying the definition of ideal location which is the place of maximum 



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net advantage or which gives lowest unit cost of production and distribution, site 
B would be preferred. 

7.2.2 SELECTION CRITERIA 

The important considerations for selecting a suitable location are given as 
follows: 

a) Natural or climatic conditions. 

b) Availability and nearness to the sources of raw material. 

c) Transport costs-in obtaining raw material and also distribution or marketing 
finished products to the ultimate users. 

d) Access to market: small businesses in retail or wholesale or services should be 
located within the vicinity of densely populated areas. 

e) Availability of Infrastructural facilities such as developed industrial sheds or 
sites, link roads, nearness to railway stations, airports or sea ports, availability 
of electricity, water, public utilities, civil amenities and means of 
communication are important, especially for small scale businesses. 

f) Availability of skilled and non-skilled labour and technically qualified and 
trained managers. 

g) Banking and financial institutions are located nearby. 

h) Locations with links: to develop industrial areas or business centers result in 
savings and cost reductions in transport overheads, miscellaneous expenses. 

i) Strategic considerations of safety and security should be given due importance. 

j) Government influences: Both positive and negative incentives to motivate an 
entrepreneur to choose a particular location are made available. Positive 
includes cheap overhead facilities like electricity, banking transport, tax relief, 
subsidies and liberalization. Negative incentives are in form of restrictions for 
setting up industries in urban areas for reasons of pollution control and 
decentralization of industries. 

k) Residence of small business entrepreneurs want to set up nearby their 
homelands 

One study of locational considerations from small-scale units revealed that the 
native place or homelands of the entrepreneur was the most important factor. 
Heavy preference to homeland suggests that small-scale enterprise is not freely 
mobile. Low preference for Government incentives suggests that concessions and 
incentives cannot compensate for poor infrastructure. 

Table given below also suggests that the locational choice undergo change with 
differences in the levels of development across the regions (hills and plains). 



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Table 7.2: Factors Affecting Location Decision 



Considerations 


Entrepreneur's Response 


Hills 


Plains 


Total 


No. 


% 


No. 


% 


No. 


% 


Homeland 


15 


67 


11 


39 


26 


52 


Government 
Incentives 


3 


14 


1 


4 


4 


8 


Availability of 
Raw material 








1 


4 


1 


2 


Availability of 
labour 


2 


9 








2 


4 


Availability of 
market 








5 


18 


5 


10 


Availability of 

infrastructure 

Facilities 


1 


5 


9 


32 


10 


20 


Others 


1 


5 


1 


4 


2 


4 


Total 


22 


100 


28 


100 


50 


100 



7.2.3 SIGNIFICANCE 



From the discussion above, we have already learnt that location of a plant is an 
important entrepreneurial decision because it influences the cost of production 
and distribution to a great extent. In some cases, you will find that location may 
contribute to even 10% of cost of manufacturing and marketing. Therefore, an 
appropriate location is essential to the efficient and economical working of a plant. 
A firm may fail due to bad location or its growth and efficiency may be restricted. 



CHECK YOUR PROGRESS 



1. The factor least important to consider when selecting a location for a new 
furniture store is 

a. The weather of the community 

b. The future of the community 

c. The other businesses in the community 

d. The age distribution of the population in the community 



2. When selecting a site for a business it is important to 
a. Purchase the property when possible 



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b. Lease the property to avoid the problem of mortgage payments 

c. Rent or buy the property, whichever must be done in order to obtain 
the specific site 

d. Make comparisons between the rentals of neighboring stores and 
property for sale 

3. After going through the above section, choose any five key words and explain 
their meaning in your own words 



ACTIVITY 



Talk to three entrepreneurs, one in manufacturing, one in trade and one in service 
business. Discuss with them to find out: 

(a) The factors considered by them in the location decision. 

(b) How have availability of transportation and labour affected their location 
decision? 



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7.3 PLANT LAYOUT 



The efficiency of production depends on how well the various machines; 
production facilities and employee's amenities are located in a plant. Only the 
properly laid out plant can ensure the smooth and rapid movement of material, 
from the raw material stage to the end product stage. Plant layout encompasses 
new layout as well as improvement in the existing layout. 

It may be defined as a technique of locating machines, processes and plant 
services within the factory so as to achieve the right quantity and quality of output 
at the lowest possible cost of manufacturing. It involves a judicious arrangement 
of production facilities so that workflow is direct. 



7.3.1 DEFINITION 



A plant layout can be defined as follows: 

Plant layout refers to the arrangement of physical facilities such as machinery, 
equipment, furniture etc. with in the factory building in such a manner so as to 
have quickest flow of material at the lowest cost and with the least amount of 
handling in processing the product from the receipt of material to the shipment of 
the finished product. 

According to Riggs, "the overall objective of plant layout is to design a physical 
arrangement that most economically meets the required output - quantity and 
quality." 

According to J. L. Zundi, "Plant layout ideally involves allocation of space and 
arrangement of equipment in such a manner that overall operating costs are 
minimized. 

7.3.2 IMPORTANCE 

Plant layout is an important decision as it represents long-term commitment. An 
ideal plant layout should provide the optimum relationship among output, floor 
area and manufacturing process. It facilitates the production process, minimizes 
material handling, time and cost, and allows flexibility of operations, easy 
production flow, makes economic use of the building, promotes effective 
utilization of manpower, and provides for employee's convenience, safety, 
comfort at work, maximum exposure to natural light and ventilation. It is also 



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important because it affects the flow of material and processes, labour efficiency, 
supervision and control, use of space and expansion possibilities etc. 

7.3.3 ESSENTIALS 

An efficient plant layout is one that can be instrumental in achieving the 
following objectives: 

a) Proper and efficient utilization of available floor space 

b) To ensure that work proceeds from one point to another point without any 
delay 

c) Provide enough production capacity. 

d) Reduce material handling costs 

e) Reduce hazards to personnel 

f) Utilise labour efficiently 

g) Increase employee morale 
h) Reduce accidents 

i) Provide for volume and product flexibility 
j) Provide ease of supervision and control 
k) Provide for employee safety and health 
1) Allow ease of maintenance 
m) Allow high machine or equipment utilization 
n) Improve productivity 

7.3.4 TYPES OF LAYOUT 

As discussed so far the plant layout facilitates the arrangement of machines, 
equipment and other physical facilities in a planned manner within the factory 
premises. An entrepreneur must possess an expertise to lay down a proper layout 
for new or existing plants. It differs from plant to plant, from location to location 
and from industry to industry. But the basic principles governing plant layout are 
more or less same. 

As far as small business is concerned, it requires a smaller area or space and can 
be located in any kind of building as long as the space is available and it is 
convenient. Plant layout for Small Scale business is closely linked with the 
factory building and built up area. 

From the point of view of plant layout, we can classify small business or unit into 
three categories: 

1 . Manufacturing units 

2. Traders 

3 . Service Establishments 



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1. Manufacturing units 

In case of manufacturing unit, plant layout may be of four types: 

(a) Product or line layout 

(b) Process or functional layout 

(c) Fixed position or location layout 

(d) Combined or group layout 

(a) Product or line layout: 

Under this, machines and equipments are arranged in one line depending upon the 
sequence of operations required for the product. The materials move form one 
workstation to another sequentially without any backtracking or deviation. Under 
this, machines are grouped in one sequence. Therefore materials are fed into the 
first machine and finished goods travel automatically from machine to machine, 
the output of one machine becoming input of the next, e.g. in a paper mill, 
bamboos are fed into the machine at one end and paper comes out at the other end. 
The raw material moves very fast from one workstation to other stations with a 
minimum work in progress storage and material handling. 

The grouping of machines should be done keeping in mind the following general 
principles. 

a) All the machine tools or other items of equipments must be placed at the point 
demanded by the sequence of operations 

b) There should no points where one line crossed another line. 

c) Materials may be fed where they are required for assembly but not necessarily 
at one point. 

d) All the operations including assembly, testing packing must be included in the 
line 

A line layout for two products is given below. 



Product A 



Product B 



Lathe Drill Grinder 
"(1) *(2) T3) — 

Planer Grinder Miler 
"(1) ► (2) *(3)- 



Assembly 
~*(4) 



Lathe 
"► (4)" 



Paint shop 

Welding 
~*X6) 



Advantages: Product layout provides the following benefits: 

a) Low cost of material handling, due to straight and short route and absence of 
backtracking 



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b) Smooth and uninterrupted operations 

c) Continuous flow of work 

d) Lesser investment in inventory and work in progress 

e) Optimum use of floor space 

f) Shorter processing time or quicker output 

g) Less congestion of work in the process 

h) Simple and effective inspection of work and simplified production control 

i) Lower cost of manufacturing per unit 

Disadvantages: Product layout suffers from following drawbacks: 

a. High initial capital investment in special purpose machine 

b. Heavy overhead charges 

c. Breakdown of one machine will hamper the whole production process 

d. Lesser flexibility as specially laid out for particular product. 

Suitability: Product layout is useful under following conditions: 

1 ) Mass production of standardized products 

2) Simple and repetitive manufacturing process 

3) Operation time for different process is more or less equal 

4) Reasonably stable demand for the product 

5) Continuous supply of materials 

Therefore, the manufacturing units involving continuous manufacturing process, 
producing few standardized products continuously on the firm's own 
specifications and in anticipation of sales would prefer product layout e.g. 
chemicals, sugar, paper, rubber, refineries, cement, automobiles, food processing 
and electronics etc. 



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(b) Process layout : 

In this type of layout machines of a similar type are arranged together at one place. 
E.g. Machines performing drilling operations are arranged in the drilling 
department, machines performing casting operations be grouped in the casting 
department. Therefore the machines are installed in the plants, which follow the 
process layout. 

Hence, such layouts typically have drilling department, milling department, 
welding department, heating department and painting department etc. The process 
or functional layout is followed from historical period. It evolved from the 
handicraft method of production. The work has to be allocated to each 
department in such a way that no machines are chosen to do as many different job 
as possible i.e. the emphasis is on general purpose machine. 

The work, which has to be done, is allocated to the machines according to loading 
schedules with the object of ensuring that each machine is fully loaded. Process 
layout is shown in the following diagram. 




Product A: 
Product B: 



Process layout showing movement of two products 

The grouping of machines according to the process has to be done keeping in 
mind the following principles 

a) The distance between departments should be as short as possible for avoiding 
long distance movement of materials 

b) The departments should be in sequence of operations 

c) The arrangement should be convenient for inspection and supervision 



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Advantages: Process layout provides the following benefits 

a) Lower initial capital investment in machines and equipments. There is high 
degree of machine utilization, as a machine is not blocked for a single product 

b) The overhead costs are relatively low 

c) Change in output design and volume can be more easily adapted to the output 
of variety of products 

d) Breakdown of one machine does not result in complete work stoppage 

e) Supervision can be more effective and specialized 

f) There is a greater flexibility of scope for expansion. 

Disadvantages: Product layout suffers from following drawbacks 

a. Material handling costs are high due to backtracking 

b. More skilled labour is required resulting in higher cost. 

c. Time gap or lag in production is higher 

d. Work in progress inventory is high needing greater storage space 

e. More frequent inspection is needed which results in costly supervision 

Suitability: Process layout is adopted when 

1 . Products are not standardized 

2. Quantity produced is small 

3. There are frequent changes in design and style of product 

4. Job shop type of work is done 

5. Machines are very expensive 

Thus, process layout or functional layout is suitable for job order production 
involving non-repetitive processes and customer specifications and non- 
standardized products, e.g. tailoring, light and heavy engineering products, made 
to order furniture industries, jewelry. 

(c) Fixed Position or Location Layout 

In this type of layout, the major product being produced is fixed at one location. 
Equipment labour and components are moved to that location. All facilities are 
brought and arranged around one work center. This type of layout is not relevant 
for small scale entrepreneur. The following figure shows a fixed position layout 
regarding shipbuilding. 







Ship building yard 






■» *■ • 1 










Material 














Finished 
Products (ship) 


Labour 






Fciuinment 





























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Advantages: Fixed position layout provides the following benefits 

a) It saves time and cost involved on the movement of work from one 
workstation to another. 

b) The layout is flexible as change in job design and operation sequence can be 
easily incorporated. 

c) It is more economical when several orders in different stages of progress are 
being executed simultaneously. 

d) Adjustments can be made to meet shortage of materials or absence of workers 
by changing the sequence of operations. 

Disadvantages: Fixed position layout has the following drawbacks 

a. Production period being very long, capital investment is very heavy 

b. Very large space is required for storage of material and equipment near the 
product. 

c. As several operations are often carried out simultaneously, there is possibility 
of confusion and conflicts among different workgroups. 

Suitability: The fixed position layout is followed in following conditions 

1 . Manufacture of bulky and heavy products such as locomotives, ships, boilers, 
generators, wagon building, aircraft manufacturing, etc. 

2. Construction of building, flyovers, dams. 

3. Hospital, the medicines, doctors and nurses are taken to the patient (product). 

(d) Combined layout 

Certain manufacturing units may require all three processes namely intermittent 
process (job shops), the continuous process (mass production shops) and the 
representative process combined process [i.e. miscellaneous shops]. 

In most of industries, only a product layout or process layout or fixed location 
layout does not exist. Thus, in manufacturing concerns where several products 
are produced in repeated numbers with no likelihood of continuous production, 
combined layout is followed. Generally, a combination of the product and 
process layout or other combination are found, in practice, e.g. for industries 
involving the fabrication of parts and assembly, fabrication tends to employ the 
process layout, while the assembly areas often employ the product layout. In soap, 
manufacturing plant, the machinery manufacturing soap is arranged on the 
product line principle, but ancillary services such as heating, the manufacturing of 
glycerin, the power house, the water treatment plant etc. are arranged on a 
functional basis. 



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2. Traders 

When two outlets carry almost same merchandise, customers usually buy in the 
one that is more appealing to them. Thus, customers are attracted and kept by 
good layout i.e. good lighting, attractive colours, good ventilation, air 
conditioning, modern design and arrangement and even music. All of these things 
mean customer convenience, customer appeal and greater business volume. 

The customer is always impressed by service, efficiency and quality. Hence, the 
layout is essential for handling merchandise, which is arranged as per the space 
available and the type and magnitude of goods to be sold keeping in mind the 
convenience of customers. 

There are three kinds of layouts in retail operations today. 

1 . Self service or modified self service layout 

2. Full service layout 

3. Special layouts 

The self-service layouts, cuts down on sales clerk's time and allow customers to 
select merchandise for themselves. Customers should be led through the store in 
a way that will expose them to as much display area as possible, e.g. Grocery 
Stores or department stores. In those stores, necessities or convenience goods 
should be placed at the rear of the store. The use of color and lighting is very 
important to direct attention to interior displays and to make the most of the stores 
layout. 

All operations are not self-service. Certain specialty enterprises sell to fewer 
numbers of customers or higher priced product, e.g. Apparel, office machines, 
sporting goods, fashion items, hardware, good quality shoes, jewelry, luggage and 
accessories, furniture and appliances are all examples of products that require 
time and personal attention to be sold. These full service layouts provide area and 
equipment necessary in such cases. 

Some layouts depend strictly on the type of special store to be set up, e.g. TV 
repair shop, soft ice cream store, and drive-in soft drink stores are all examples of 
business requiring special design. Thus, good retail layout should be the one, 
which saves rent, time and labour. 

3. Services centers and establishment 

Services establishments such as motels, hotels, restaurants, must give due 
attention to client convenience, quality of service, efficiency in delivering services 
and pleasing office ambience. In today's environment, the clients look for ease in 
approaching different departments of a service organization and hence the layout 



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should be designed in a fashion, which allows clients quick and convenient access 
to the facilities offered by a service establishment. 

7.3.5 FACTORS INFLUENCING LAYOUT 

While deciding his factory or unit or establishment or store, a small-scale 
businessman should keep the following factors in mind: 

a) Factory building: The nature and size of the building determines the floor 
space available for layout. While designing the special requirements, e.g. air 
conditioning, dust control, humidity control etc. must be kept in mind. 

b) Nature of product: product layout is suitable for uniform products whereas 
process layout is more appropriate for custom-made products. 

c) Production process: In assembly line industries, product layout is better. In 
job order or intermittent manufacturing on the other hand, process layout is 
desirable. 

d) Type of machinery: General purpose machines are often arranged as per 
process layout while special purpose machines are arranged according to 
product layout 

e) Repairs and maintenance: machines should be so arranged that adequate 
space is available between them for movement of equipment and people 
required for repairing the machines. 

f) Human needs: Adequate arrangement should be made for cloakroom, 
washroom, lockers, drinking water, toilets and other employee facilities, 
proper provision should be made for disposal of effluents, if any. 

g) Plant environment: Heat, light, noise, ventilation and other aspects should be 
duly considered, e.g. paint shops and plating section should be located in 
another hall so that dangerous fumes can be removed through proper 
ventilation etc. Adequate safety arrangement should also be made. 

Thus, the layout should be conducive to health and safety of employees. It 
should ensure free and efficient flow of men and materials. Future expansion and 
diversification may also be considered while planning factory layout. 

7.3.6 DYNAMICS OF PLANT LAYOUT 

Plant layout is a dynamic rather than a static concept meaning thereby if once 
done it is not permanent in nature rather improvement or revision in the existing 
plant layout must be made by keeping a track with development of new machines 
or equipment, improvements in manufacturing process, changes in materials 
handling devices etc. But, any revision in layout must be made only when the 
savings resulting from revision exceed the costs involved in such revision. 

Revision in plant layout may become necessary on account of the following 
reasons: 



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a) Increase in the output of the existing product 

b) Introduction of a new product and diversification 

c) Technological advancements in machinery, material, processes, product 
design, fuel etc. 

d) Deficiencies in the layout unnoticed by the layout engineer in the beginning. 

7.3.7 APPLICABILITY OF PLANT LAYOUT 

Plant layout is applicable to all types of industries or plants. Certain plants 
require special arrangements which, when incorporated make the layout look 
distinct form the types already discussed above. Applicability of plant layout in 
manufacturing and service industries is discussed below. 

In case of the manufacturing of detergent powder, a multi-storey building is 
specially constructed to house the boiler. Materials are stored and poured into the 
boiler at different stages on different floors. Other facilities are also provided 
around the boiler at different stations. 

Another applicability of this layout is the manufacture of talcum powder. Here 
machinery is arranged vertically i.e. from top to bottom. Thus, material is poured 
into the first machine at the top and powder comes out at the bottom of the 
machinery located on the ground floor. 

Yet another applicability of this layout is the newspaper plant, where the time 
element is of supreme importance, the accomplishment being gapped in seconds. 
Here plant layout must be simple and direct so as to eliminate distance, delay and 
confusion. There must be a perfect coordination of all departments and 
machinery or equipments, as materials must never fail. 

Plant layout is also applicable to five star hotels as well. Here lodging, bar, 
restaurant, kitchen, stores, swimming pool, laundry, shaving saloons, shopping 
arcades, conference hall, parking areas etc. should all find an appropriate place in 
the layout. Here importance must be given to cleanliness, elegant appearance, 
convenience and compact looks, which attract customers. 

Similarly plant layout is applicable to a cinema hall, where emphasis is on 
comfort, and convenience of the cinemagoers. The projector, screen, sound box, 
fire fighting equipment, ambience etc. should be of utmost importance. 

A plant layout applies besides the grouping of machinery, to an arrangement for 
other facilities as well. Such facilities include receiving and dispatching points, 
inspection facilities, employee facilities, storage etc. 

Generally, the receiving and the dispatching departments should be at either end 
of the plant. The storeroom should be located close to the production, receiving 



107 



and dispatching centers in order to minimize handling costs. The inspection 
should be right next to other dispatch department as inspections are done finally, 
before dispatch. 

The maintenance department consisting of lighting, safety devices, fire protection, 
collection and disposal of garbage, scrap etc. should be located in a place which is 
easily accessible to all the other departments in the plant. The other employee 
facilities like toilet facilities, drinking water facilities, first aid room, cafeteria etc. 
can be a little away from other departments but should be within easy reach of the 
employees. Hence, there are the other industries or plants to which plant layout is 
applicable. 

CHECK YOUR PROGRESS 

1 . The aim of a good store layout should be 

a. Customer convenience 

b. Stocking as much merchandise as can be placed in the store 

c. The elimination of stockroom space 

d. All of the above 

2. one way to increase and direct customer traffic through the store is to 

a. Make merchandise difficult to reach 

b. Keep goods that are in heavy demand in convenient locations 

c. Place items that are used together in different parts of the store 

d. Organize the store so that customers do not have a view of the entire 
department 

3. Which of the following stores would find the self-service type of layout most 
convenient? 

a. A jewelry store c. A shoe store 

b. A supermarket d. A coffee shop 

4. You have come across various key words in this section. Pick up the words, 
which do not belong to this section. 

Process layout Product mix Job shops 

Production capacity Handling cost Market segment 

Special layout Employee morale Demographic analysis 



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5. True or False: 

(a) Product Layout is followed by those manufacturing units, which involve 
production of non-standardized products 

(b) High Capital investment is required for the product manufactured under 
product layout 

(c) The fixed position layout is applied to the manufacturing of light and heavy 
engineering products 

6. Match the following: 



Layout 


Activity 


Process Layout 


Heating plant 


Product Layout 


Made to order jobs 


Product Layout 


Flyovers 


Combined Layout 


Pharmaceuticals 



ACTIVITY 



Visit a restaurant that you can classify as being in the small sector. Comment 
upon how has the layout of facilities added to or detracted from the ease of 
movement? Could you suggest some alternative layout? 



109 



7.4 SUMMARY 



In this lesson you have observed that the entrepreneur has to make decisions 
regarding plant location, which refers to the selection of a particular site for 
setting up a business or factory. But before making such a choice, he has to go 
through the detailed locational analysis considering various factors, which 
influence his decision. It is a long-term strategic decision, which cannot be 
changed once taken. An optimum location can reduce the cost of production and 
distribution to a great extent. Thus great care and appropriate planning is required 
to select the most appropriate location. 

The efficiency of production depends on how well the various machines; 
production facilities and amenities are located in a plant. An ideal plant layout 
should provide the optimum relationship among the output, floor area and 
manufacturing process. 

An efficient plant layout is one that aims at achieving various objectives like 
efficient utilization of available floor space, minimizes cost, allows flexibility of 
operation, provides for employees convenience, improves productivity etc. The 
entrepreneurs must possess the expertise to lay down a proper layout for new or 
existing plants. It differs from one plant to another. But basic principles to be 
followed are more or less same. From the point of view of plant layout, we can 
classify small business into three categories i.e. (a) manufacturing units (b) traders 
(c) service establishments. Designing of layout is different in all above three 
categories e.g. manufacturing unit may follow one of Product, Process, and fixed 
position or combined layout, as the case may be. Traders might go either for self- 
service or full service or special layouts whereas service establishments such as 
motels, hotels, and restaurants must give due attention to customer convenience, 
quality of service, efficiency in delivering the service etc. While deciding for 
layout for factory or unit or store, a small entrepreneur has to consider the factors 
like the nature of the product, production process, size of factory building, human 
needs etc. 

Plant layout is applicable to all types of industries or plants. At the end, the layout 
should be conducive to health and safety of employees. It should ensure free and 
efficient flow of men and materials. Future expansion and diversification may 
also be considered while planning factory layout. 



7.5 GLOSSARY 



The various key words, which arise in this Lesson, are: 



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Business Environment - Implies aggregate of all forces, factors and institutions, 
which are external to and beyond the control of business organizations and their 
management 

Continuous process - A process, which involves mass production of, 
standardized product repetitively. 

Diversification - A process of entering into a field of business, which is new in 
terms of the market or technology or both 

Expansion - Consists of increasing the sales revenue, profits and market share of 
existing product line or service 

Entrepreneur - A person who is skilled at identifying new products (or 
sometimes new method of production), setting up operations for setting up new 
products, marketing the product and arranging the finance for the operations. 

Handling cost - Cost of carrying material or storage cost. 

Intermittent process -Is a process in which raw materials are converted into 
components or parts for stock. But they are combined according to customer 
orders. 

Manufacturing - General term for the process of producing or assembling goods 
by hands or machines for sale to others. 

Overhead cost - Operating costs of a business enterprise, which cannot be 
directly traced to a particular unit of product 

Production capacity- Ability to produce in terms of units 

Trader - A person who is engaged in buying and selling of goods. 

7.6 SELF ASSESSMENT QUESTIONS ~ 

1 . Describe the factors that should be taken into account in deciding the location 
of plant? 

2. What is the importance of location in business? 

3. The governing principle is that a plant should be so located as to permit the 
production of the product at the lowest cost per unit." Comment. 

4. What do you mean by locational analysis? 



Ill 



5. Explain the meaning and significance of plant location .How will you decide 
the location of a mini steel plant in India? 

6. Define the plant layout. 

7. What are the various factors influencing the layout of grocery store? 

8. What are the principles for planning the layout of a new factory? 

9. Explain process layout? State its advantages and disadvantages in brief 

10. Distinguish between product layout and process layout? 

11. Explain the suitability of fixed position layout 

12. Write about any two types of plant layout 

13. (13) What is plant layout? Discuss the objectives and advantages of a good 
layout 

7.7 FURTHER READINGS AND SOURCES 

Charantinath M Poornima, Entrepreneurship Development Small Business 

Enterprises: Pearson Education First Impression, 2006 

Florence. P. Sargent, Investment, Location and Size of plant, London: Cambridge 

University Press, 1984 

Government of India (Office of the Economic Adviser), Location of Industries in 

India, New Delhi, 1963 

Lundy, James. L. Effective Industrial Management, New Delhi: Eurasia 

Publishing House, New Edition, 1984 

Sreekantaradhya, B.S., Regional Dispersal of Industries, New Delhi; Deep and 

Deep, 1985 

Weber, Alfred, Theory of Location of Industries, Chicago: The University of 

Chicago Press, 1929 

Asian Productivity Organisation, Production Engineering, Manila: APO, 1981 

Buffa Elwood S., Operations Management, New Delhi: Wiley Eastern, 1986 

Kumar Anil, S.C. Purnima, Abrahim Mini K, K Jayashree, "Entrepreneurship 

development": New Age International Private Limited Publisher, 2003 

Read Ruddel R., Plant Layout - Factors, Principles and Techniques, Illinois: 

Richard D. Irwin, 1978 

Gupta C.B. and Khanka S.S., Entrepreneurship and small business management: 

Sultan Chand and Sons 2003 

Shubin John A. and H. Madeheim, Plant Layout, New Delhi: Prentice Hall of 

India, 1986 

Gupta and Srinivasan, Entrepreneurial Development: Sultan Chand and Sons 

1995 



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Brandt, Steven C.,The 10 Commandments for Building a Growth Company: 

Third Edition, Macmillan Business Books, Delhi 1977 

Bhide, Amar V.,The Origin and Evolution of New Business: Oxford University 

Press, New York, 2000 

Desai, Vasant, Small Scale Enterprises Vols. 1-12, Mumbai: Himalaya Publishing 

House, Latest Edition 

Dollinger, Marc J., Entrepreneurship: Strategies and Resources, Illinois, Irwin, 

1955 

Taneja, Staish and Gupta SL, Entrepreneurship Development and New Venture 

Creation: Galgotia Publishing Co 2001 

Holt, David H., Entrepreneurship: New Venture Creation, Prentice-Hall of India, 

New Delhi, Latest Edition 

Panda, Shiba Charan, Entrepreneurship Development, New Delhi: Anmol 

Publications, Latest Edition 

Patel, V.G. The Seven Business Crises and How to Beat Them: Tata-McGraw, 

New Delhi, 1995 

Verma, J.C., and Gurpal Singh, Small Business and Industry - A handbook for 

Entrepreneurs, New Delhi, Sage, 2002 

Ghosh, Bishwanath entrepreneurship development in India: National publishing 

house, Jaipur and New Delhi 2000 



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